Derivative contracts are often portrayed as the bad boys of the financial marketplace, but this characterization misrepresents most derivatives and their uses. In fact, most deriva...

Under the rules of fair value hedge accounting, a prerequisite condition is that the hedge should be highly effective in offsetting this specific value change – i.e., the value cha...

The fact is, one leg of the swap does serves as an offset, but the other leg delivers a wholly unpredictable result that will vary, depending on the path of the variable interest r...

Most banks and credit unions have similar business models – they fund long-term assets (loans to customers) with short-term liabilities (deposits from customers). Current market c...

Free Webinar and Earn CPE credit: 3-step guide to hedging interest rate risk.

The bank effectively trades the two swaps simultaneously. We start with the consideration of the two, respective at-market swaps – i.e., swaps that have a starting value of zero, w...

Qualifying for shortcut on fair value hedges requires structuring the swap with the following features: (a) the hedging derivative’s notional amount equals the principal of the hed...

While this minor disparity in the effective fixed rate, ex post, relative to its ex ante anticipated fixed rate would likely justify the assessment that the hedge will perform quit...

With this orientation, the bank would typically seek to hedge all or a portion of the uncertain funding costs that would be expected to arise during the period for which the loan’s...

Publication:  AFP Exchange

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Many companies with variable-rate funding look to derivatives to transform their variable interest-rate exposures to synthetic fixed-rate debt....

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